Collaboration

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54

Secrets to successful
manufacturer-retailer
collaboration
More companies can reap the benefits of supply-chain collaboration if they pay
attention to six success factors.

Andreas Brinkhoff and
Jochen Großpietsch

A growing number of consumer-goods manu-

fulfillment” as the two most important topics

facturers and retailers are working together to

for future collaboration.

improve their performance. Such collaboration—
partnering on initiatives that extend beyond

The rewards for supply-chain collaboration can

day-to-day business and that aim to deliver

be substantial. A recent study by the Grocery

significant long-term value for both parties—is a

Manufacturers Association estimated the total

welcome alternative to price-driven (and at times

opportunity (in cost savings and margin) for the

antagonistic) supplier-retailer relationships. In a

US consumer sector at $10 billion; in Europe,

2012 survey of 140 companies, conducted by

which has a more fragmented consumer industry,

ECR Europe and McKinsey, all respondents said

the number would probably be even higher. The

they collaborate in at least one area of their

ECR−McKinsey survey respondents reported

business; more than half said they collaborate in

that successful collaboration, on average,

at least six areas.1

resulted in a 4.4 percent decrease in out of
stocks and a cost reduction of 5.4 percent

1 Collaboration today and

tomorrow—taking the right
steps on the path to impact,
ECR Europe and McKinsey
& Company, May 2012,
mckinsey. com.

Traditionally, retailers and manufacturers’

(exhibit). The research firm Advantage, in its

collaborative efforts have focused on

2013 review of retailer-manufacturer collab-

commercial areas such as in-store programs

oration in the US market, found that the most

and merchandising. The survey indicates this

collaborative companies increased revenues by

is changing: recognizing that supply-chain

3.7 percent more than the average company.

performance will be critical to controlling costs

The magnitude of these improvements is backed

and improving service in the coming years,

up by our analysis of more than 100 cases of

survey participants ranked “supply-chain flows

successful supply-chain collaboration over

and processes” and “demand planning and

the years.

55

Retail and Consumer Perspectives 2014
Collaboration
Exhibit 1 of 1

Exhibit

Successful collaboration offers many benefits.

Most important collaboration
areas for coming years1
Supply
chain

1 Supply-chain flows and processes

2 Demand planning and fulfillment

Commercial

Average impact reported
by respondents1

4.4% decrease in out of stocks
5.4% decrease in costs

3 Category product assortment

4 Promotion strategy and calendar

6.3% increase in sales
3.9% increase in profits

5 In-store layout/visual merchandising

1 As

reported by 140 survey respondents from 13 countries.

Source: Collaboration today and tomorrow—taking the right steps on the path to impact, ECR Europe
and McKinsey & Company, May 2012, mckinsey.com

We’ve found that some of the largest companies

suppliers are working more closely with retailers

are among the most active collaborators, and

to reduce out-of-stock rates (as Coca-Cola is

increasingly these organizations are scaling

doing) or to continuously refine delivery

up collaboration initiatives from small, local

processes (as Unilever is doing). To improve

pilot projects to solutions that are deeply

planning, Nestlé piloted a new role—the

anchored in core processes. For instance,

customer-based coordinator, who works

retailers such as Tesco and Wal-Mart have

exclusively with a specific retailer—in its supply-

collaborated with suppliers to establish clear

chain teams in Spain and the United Kingdom

logistics standards. Market leaders, as well as

and has since rolled it out across Europe.

midsize retailers like the German drugstore dm,
are giving suppliers access to important data,

Yet, despite the cost and effort invested by both

such as SKU-level order forecasts. Some

parties, 40 percent of collaboration efforts fail to

56

Perspectives on retail and consumer goods Summer 2014

deliver sustained impact. One reason is that

through discounts or price increases. Some

benefits still tend to be distributed inequitably:

companies have established joint benefit pools,

according to our survey respondents, retailers

using the savings to fund cost-reduction efforts or

typically gain more from collaboration efforts

sales-improvement programs.

(about 8 percent in cost reduction) than their
manufacturing partners do (2 percent).

3. Select partners based on capabilities,

Respondents further cite insufficient resources,

strategic goals, and value potential. Many

lack of leadership support, and reluctance by

companies aim to collaborate with their largest

one or both parties to share information as the

suppliers or customers—but the largest partner

primary reasons collaborations don’t last.

may not be the best one. A smaller partner may
invest more in a collaboration effort than a large

Based on the survey results and our industry

partner who is already juggling similar efforts.

experience, we have identified six steps

A better approach is to assess potential partners

that can make the difference between a

across three dimensions. First, is there enough

productive collaboration and a frustrating one.

potential value in collaborating with this partner?

(In any collaboration effort, parties should

Second, do both parties have sufficiently

ensure they are in compliance with local laws

common strategic interests? Third, does the

and requirements.)

partner have the infrastructure and processes

1. Collaborate in areas where you have solid

the collaboration?

in place to provide a strong foundation for
footing. The most successful collaborations
build on strengths rather than compensate for

4. Dedicate cross-functional resources and

weaknesses. A manufacturer seeking to

ensure senior-leadership involvement.

collaborate with a retailer in the hopes of

A successful collaboration begins at the top,

improving its forecasting performance, for

with a steering committee of senior leaders who

instance, will have little to gain from access to

not only set the defining vision for the effort, but

the retailer’s point-of-sale data unless it has the

also have the power to allocate the necessary

in-house analytical capabilities to make effective

resources to support it. A cross-functional team

use of those data.

consisting of representatives from both
organizations designs the initiative and carefully

2. Agree on benefit-sharing models. Rather than

considers its operational implications. For

shying away from seemingly unbalanced

example, the team for a demand-planning effort

collaborations, companies can make them work by

should include representatives from the

recognizing the potential imbalance, identifying the

manufacturer’s sales, finance, and supply-chain

benefits of collaboration, and developing ways to

functions and the retailer’s purchasing,

share the benefits more fairly—for example,

merchandising, and store-operations functions.

Secrets to successful manufacturer-retailer collaboration

57

5. Jointly manage performance and measure

6. Collaborate for the long term. The final

impact. Both parties should use the same

ingredient for a successful collaboration is

metrics and performance-management system.

stamina. Through joint planning sessions and

Selecting the right metrics inevitably involves

multiyear performance metrics, both parties must

trade-offs. For example, to reduce logistics

define long-term objectives and develop a road

costs, the partners may have to choose between

map for future collaborative initiatives, while

a pallet configuration suited to a retailer’s

being mindful of and capturing quick wins to gain

restocking process, which will reduce in-store

momentum for the effort.

labor costs, and one optimized for truck fill,
which will reduce transportation costs between
the distribution center and the store. We

The payoff from collaborative efforts can be

recommend that partners select and track the

tremendous. Although successful collaboration is

smallest number of metrics required to provide a

neither quick nor simple, it is certainly

clear picture of the effort’s overall performance.

achievable—and definitely worthwhile.

Partners should schedule regular problemsolving sessions to address trade-offs.

Parts of this article are adapted from Luis Benavides, Verda De Eskinazis, and Daniel Swan, “Six steps to successful
supply chain collaboration,” Supply Chain Quarterly, Quarter 2 2012, supplychainquarterly.com.
Andreas Brinkhoff is an associate principal in McKinsey’s Cologne office, and Jochen Großpietsch is a
principal in the Barcelona office. Copyright © 2014 McKinsey & Company. All rights reserved.

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